What percentage of your assets have you annuitized / do you plan to annuitize ?

[rescueme]

I think I would buy SPIA annuities to cover the basics if I didn't have the pensions.

Exactly what I (we) did ...

 

[youbet]

At the time of my retirement (age 59), we annuitized 10% of the value of our joint retirement portfolio value through an SPIA, to provide me with a base income, that was not influenced by the varience of the market.

Almost five years later in retirement, I would say (for us) it was one of the "smart" financial decisions in our lives.

For us, it was the fact that I retired early (at least earlier than most) without a pension, and with the decision to delay SS till age 70 - an eleven year span.

This allows me to delay SS till age 70, thus maximize my DW's survivor benefits, allow me to accumulate an increase in SS by 8%/year (in addition to any COLA's during that period) from ages 66-69, and be able to claim against DW's benefit at age 66 at a 50% rate (we're the same age). BTW, that will be a "superior annuity", COLA adjusted, and our current SPIA? Just added as additional income stream.

I'll be the first to say that an annuity is not for everybody; you need to have a reason (well thought out) to persue such an action. Part of the decision was made by running different scernieos through the use of various (free) forcast models, such as FireCalc, RIP (Fidelity), and FE (Vanguard) to see if the option would be applicable to your personal situation. In our case (only), the addition of the SPIA greatly increased the return, and the viability of our personal plan.

BTW we have no regrets, and will seriously consider additional SPIA income streams as we age...

I'm glad your annuity is working out well for you. But I'll point out that your annuity was only one of a number of paths you could have chosen to fund the years while you delayed SS.

 

[Midpack]

If all goes well and according to my plans, I won't annuitize at all. I have no pension, and Soc Sec doesn't figure prominently in our plans.

However, this is how I plan to assess whether to annuitize if ever http://www.schulmerichandassoc.com/Modern_Portfolio_Decumulation.pdf. I can't recommend this 12-page article too strongly as a conceptual determinant basis to evaluate when/if to buy an annuity (and I've mentioned it on this forum several times before). It's not unlike Otar's Unveiling the Retirement Myth approach to annuitization for those who have read that, except almost 500 pages shorter!!!

And BTW, annuities are presently very expensive from an interest rate POV. Now is one of the worst times to sign up for an annuity, if you can possibly avoid or delay. Some people just can't sleep at night if they don't have predictable monthly checks coming in, for them an annuity might be the best approach, but not now if it can be avoided.

 

[Rich_by_the_Bay]

Sorry, I don't get it. Remember I don't work in finance so please be patient with me... If I enter "Female", 65 years, $100,000 (as an example) on this website Immediate Annuities - Instant Annuity Quote Calculator. I get $674 (about 8%) Guaranteed Income for a 15-Year Period Certain Only. Are you saying that your SIL got 0.08%, or did she get 8% ? Is it net or gross ? Is it paid monthly?

You do realize that the distributions from a single payment immediate annuity include a return of your original investment. So the 8% is not annual earnings - it's a combination of earnings/gains plus partial return of your own money. I suspect investment return is more like 3% these days, frozen forever even if the market rises.

 

[MichaelB]

Sorry, I don't get it. Remember I don't work in finance so please be patient with me... If I enter "Female", 65 years, $100,000 (as an example) on this website Immediate Annuities - Instant Annuity Quote Calculator. I get $674 (about 8%) Guaranteed Income for a 15-Year Period Certain Only. Are you saying that your SIL got 0.08%, or did she get 8% ? Is it net or gross ? Is it paid monthly?

$100K, @ $674 monthly for 15 years gives 2.68% annual rate of return according to my HP 10B (before tax).

 

[powerplay]

My annuity is my federal pension. I have no plans to purchase an annuity with my savings. There will be a RMD from my TSP in the future, but I may start withdrawals earlier if I want to bump my income a bit. The Roth IRA will be available if I want/need the $$ or could just end up as part of my estate.

 

[rescueme]

Now is one of the worst times to sign up for an annuity, if you can possibly avoid or delay.

I would agree.

Our SPIA was purchased (mid-2007) at a better interest rate period, but something you should consider (IMHO) is not only the interest rate, but also the monthly income provided, to meet your monthly budget/bills.

I often hear about folks saying you "should not get an annuity (any) until you are 80+ years of age, due to the return rate.

However, folks don't remember (or understand) that some of this return is based upon your age. At age 80 (or above), they are just returning "your money" based upon your expected lifespan.

As an example, our SPIA (based upon our joint age) was considered "low". We could have received a much higher "rate", based upon our joint age, if we decided to execute the contract at the age of 80+; however the inferred rate also includes the return of our "own money", which drives up the inferred rate.

However, here is the problem with such "inferences". If you decide to retire early (at whatever age), what do you use as income? Your retirement portfolio, subject to the "flux" of the market? Do you use CD's (at a currrent low rate) or a MM account?

So as a retiree (as I am), who likes the idea of delayed SS (both for the increase in benefits, along with survivior benefits over the long term), my interest is in providing "guaranteed return" to cover my base retirement income/budget needs.

The SPIA (regardless of the rate) provides this.

Folks forget that an annuity (talking about an SPIA) is not an "investment vehicle". It is strictly an income vehicle, to ensure a constant stream of required income, to meet required current expenses.

For us? We converted 10% of our retirement portfolio to provide such income. As for future investment/gains? That's what the remainder 90% is for....

 

[Huston55]

Our current plan is to consider an immediate annuity (IA) to cover any gap btwn guaranteed income (SS + small pension) and "essential" expenses, and invest the remainder with an AA including a healthy (TBD) allocation to equities. Our current retirement budget is ~75% essential/25% discretionary. I think "timing" of the IA will be the most difficult decision.

I didn't really get a lot out of this article. It concluded what seemed intuitively obvious to me when you view the graphs. Also, the income ranges used in the analysis may not apply to me, you or others, diminishing the value and applicability of the analysis.

The one assertion which most interested me [that a modest investment in a longevity annuity provides as much income adequacy as a substantial investment in an immediate annuity] in the conclusion at the end (p#21) didn't have any support in the analysis, at least that I could find. If anyone knows more about this, I'd be interested in hearing it, even though I'm skeptical about longevity annuities (which I interpret as, "give us your $$$, and if you're still alive and we're still solvent many years later, you might get cash back").

 

[Huston55]

I'm glad your annuity is working out well for you. But I'll point out that your annuity was only one of a number of paths you could have chosen to fund the years while you delayed SS.

YB-

I'd be interested in seeing your list of other paths given a situation similar to Rescue's ( and many of the rest of us).

 

[obgyn65]

Thanks Michael. When I enter 62 year old Male, and, for example, Deposit $100,000 in Indiana in the same website http://www.immediateannuities.com/ I get $549 per month for Single Life Income with No Payments to Beneficiaries ("SL"). Do we agree this is equivalent to 6.5% a year? 6.5% looks better to me than my 3% average on CDs or munis... especially when I have no heir to worry about.

$100K, @ $674 monthly for 15 years gives 2.68% annual rate of return according to my HP 10B (before tax).

 

[rescueme]

YB-

I'd be interested in seeing your list of other paths given a situation similar to Rescue's ( and many of the rest of us).

So would I (since YB's on my ignore list) ...

Just a personal comment; I know there are other paths to the same objective. However, in my/DW's case, we chose what made sense (and easiest) for our case.

We're not saying ours is the path that everybody should follow (as one Boglehead senior poster says, "There are many paths to Dublin"), however this made the most sense for us.

I offer it only as a "proven" (for us) path. If you have a better one that works for you? So be it.

However, I would like to see someone who actually did what they said they planned on, rather than just talk about how they were going to execute the plan in "real life" (e.g. walk the talk).

In our case, we have the SPIA and I'm more than willing to share the details on the decision. However on this (and other forums), we hear of folks that give their opinion, not based upon fact. Personally, I have a problem with that (there I go again...).

 

[obgyn65]

Yes, I got this, thank you Rich.

You do realize that the distributions from a single payment immediate annuity include a return of your original investment. So the 8% is not annual earnings - it's a combination of earnings/gains plus partial return of your own money. I suspect investment return is more like 3% these days, frozen forever even if the market rises.

 

[Lagniappe]

I plan to look at annuities for small percentages of my portfolio (5-10% per annuity) every 5 years starting at age 60. So at age 60, if the rates are good, I might annuitize 5%. At age 65, another 5%, age 70 add 10%, etc. As I age, I would like to have less and less of my portfolio subject to poor financial judgement and/or scammers.

 

[rescueme]

I plan to look at annuities for small percentages of my portfolio (5-10% per annuity) every 5 years starting at age 60. So at age 60, if the rates are good, I might annuitize 5%. At age 65, another 5%, age 70 add 10%, etc. As I age, I would like to have less and less of my portfolio subject to poor financial judgement and/or scammers.

IMHO, your plan makes sense.

Good luck to you....

 

[bbbamI]

Currently 54/57 years of age. Both retired. Have a pension that covers 25 to 30% annual expenses, 4% total net worth funds in an annuity, and will both receive SS.

 

[Midpack]

I plan to look at annuities for small percentages of my portfolio (5-10% per annuity) every 5 years starting at age 60. So at age 60, if the rates are good, I might annuitize 5%. At age 65, another 5%, age 70 add 10%, etc. As I age, I would like to have less and less of my portfolio subject to poor financial judgement and/or scammers.

So there are no poor financial judgements and/or scammers associated with annuities?

 

[Lagniappe]

Good point. But hopefully I'll be less senile when evaluating them.

 

[skipro3]

$100K, @ $674 monthly for 15 years gives 2.68% annual rate of return according to my HP 10B (before tax).

Can you direct me to an on-line calculator I could plug that into?

I've got the option to buy service credit on my pension; $120,000 @ $ 850 monthly for life (beginning at age 56). Just wondering what I would need to earn on my own investments to do as good...

 

[youbet]

YB-

I'd be interested in seeing your list of other paths given a situation similar to Rescue's ( and many of the rest of us).

Sure, except I won't present a list since there's an implication that the list would be "all-inclusive" and in fact there is a seemingly infinite array of withdrawal possibilities. I'll just talk about what we actually did.

In our case, we chose to start SS at 62 since DW is subject to GPO. Since she can't collect on my SS as a survivor, and has little SS on her own due to WEP, starting my SS at 62 maximizes protection for her should I die first. I've covered that strategy on other threads.

To cover the years between my retirement date and 62, we used the strategy of simply having a higher WR until SS kicked in. I use a 50 - 50 AA and, despite the attention getting slump in portfolio value in 2008 and 2009, it seems to have worked out OK.

If we didn't have the GPO/WEP issue and therefore were going to delay SS to 66 or even 70, I'd have continued on the same way since it seemed to be working OK for us.

Circumstances are different for everyone. If a person could replace his SS (say $20k/yr) with an annuity funded by only 10% of his FIRE portfolio (as in an earlier example given by another poster), that implies a pretty hefty FIRE portfolio, way more than I have.

Wouldn't it take about a $3M FIRE portfolio so that 10% of it would buy an annuity = to a $20k COLA'd SS income?

 

[rescueme]

So there are no poor financial judgements and/or scammers associated with annuities?

There are risks involved with everything in life.

The trick is to measure those risks, and are you willing to take them.

If not? Then live in a cave ...

 

[eytonxav]

At this point, I would say that SS would be the only portion that could be deemed an annuity. No plans to go with something additional in the future, but I've learned to never say never.

 

[Rich_by_the_Bay]

Yes, I got this, thank you Rich.

Your post:

Thanks Michael. When I enter 62 year old Male, and, for example, Deposit $100,000 in Indiana in the same website http://www.immediateannuities.com/ I get $549 per month for Single Life Income with No Payments to Beneficiaries ("SL"). Do we agree this is equivalent to 6.5% a year? 6.5% looks better to me than my 3% average on CDs or munis... especially when I have no heir to worry about.

...suggests otherwise. You are comparing annuity distributions (earnings plus return of principle) with returns of 3% (CD interest alone).

Or maybe I have misinterpreted where you are going with this.

 

[ziggy29]

Would be interested to know what percentage of your assets have you annuitized / do you plan to annuitize. Sorry, I don't know how to create a survey on this website.

I don't have a specific number in mind. There's no way I would buy an SPIA with current interest rates, but if rates are more favorable when I retire I'd probably be willing to consider it with up to (maybe) 1/3 of retirement assets (or as much as needed to generate the extra regular income I thought I needed, whichever is less).

 

[Huston55]

If all goes well and according to my plans, I won't annuitize at all. I have no pension, and Soc Sec doesn't figure prominently in our plans.

However, this is how I plan to assess whether to annuitize if ever http://www.schulmerichandassoc.com/Modern_Portfolio_Decumulation.pdf. I can't recommend this 12-page article too strongly as a conceptual determinant basis to evaluate when/if to buy an annuity (and I've mentioned it on this forum several times before). It's not unlike Otar's Unveiling the Retirement Myth approach to annuitization for those who have read that, except almost 500 pages shorter!!!

And BTW, annuities are presently very expensive from an interest rate POV. Now is one of the worst times to sign up for an annuity, if you can possibly avoid or delay. Some people just can't sleep at night if they don't have predictable monthly checks coming in, for them an annuity might be the best approach, but not now if it can be avoided.

Pack-

This is a great article. Even though the article also acknowledges the "income stream" adjustment approach, it doesn't spend any time analyzing it. I would really like to see a paper discussing a combination of this "annuitization hurdle" approach and the "95% Rule" discussed by Clyatt.

Has anyone seen such a paper or a discussion on this?

 

[Dawg52]

I think I would buy SPIA annuities to cover the basics if I didn't have the pensions.

My thinking as well. SS + small SPIA = basic budget.

I plan to look at annuities for small percentages of my portfolio (5-10% per annuity) every 5 years starting at age 60. So at age 60, if the rates are good, I might annuitize 5%. At age 65, another 5%, age 70 add 10%, etc. As I age, I would like to have less and less of my portfolio subject to poor financial judgement and/or scammers.

Makes sense. I'm 5 years away from early SS and may put 5% towards a SPIA at that time. Possible another 5% a few years later. Then again, I might be dead by then. So who knows...........